Dungsam Polymers suffer sixth consecutive loss

Sixth year into operation and the Dungsam Polymers Limited (DPL) is yet to come out of the red.

However, the company has been able to reduce its loss by a huge margin, from about Nu 20M in 2016 to Nu 6.25M last year.

“The performance in the first quarter of this year is quite good,” DPL’s chief executive officer, Tshering Tenzin, said. “There are signs of improvement and we are expecting to break-even this year.”

The losses are mainly due to depreciation and high finance cost since the company has to pay out its loan.

According to DPL’s audited financial statement, the company suffered a loss of Nu 19.2M in its first year of operation in 2012. The company suffered the biggest loss of Nu 28.1M in 2014.

Since the DPL was established to produce and supply plastic polythene bags for the country’s largest cement plant, Dungsam Cement Corporation Limited (DCCL), the capacity of the former is suppressed by under-performance of the latter.

DPL is supplying 80 percent of its products to DCCL.

Should the cement plant run on full capacity, it would require 83,000 bags a day against DPL’s capacity of 100,000 bags a day. But when there isn’t absorptive capacity at the cement plant, the polymer plant is forced to limit its production.

However, today, DPL’s total daily production is between 50,000 and 60,000 bags, including those supplied to other customers like Penden Cement, Karma Feed, RSA Pvt. Ltd., BMG Feed, FMCL, Food Corporation of Bhutan, and Army Welfare Project.

This means DPL plant is running at 60 percent of its capacity. Initially, the plant ran at a capacity of 21 percent and for the past few years the factory was operating at less than 50 percent of the total production capacity. This has also resulted in revenue increase from Nu 27M in 2012 to Nu 146M in 2017.

For DPL to break even, it needs to produce 60,000 to 65,000 bags in a day. “Our growth is more or less dependent on DCCL’s sales. Although we have customers other than DCCL, the impact is very minimal because of small volume,” the CEO said. “Since the profit margin for polymers business is thin by nature, it has to be volume based.”

However, he said that even DCCL’s performance has improved this year compared to earlier years since the production and supply of polymer bags to the cement plant is also increasing.

While DCCL is the major customer of polymer bags, Tshering Tenzin said that DPL meets 30 percent of requirement for Penden Cement. He said that company also supplies 200,000 to 300,000 bags every quarter to the Karma Feed, besides other local manufacturing companies.

“Ever since the company embarked on commercial operation in 2012, the DPL made a tremendous progress in the production of polypropylene (PP) bags not only for cement factory but also for many other purposes,” stated a DPL’s press release issued to its shareholders. “There is a light at the end of tunnel.”

While the domestic market just begun to pick up, the Indian Goods and Services Tax that came with 18 percent tax on polythene and its products buried its scope of export market.

CEO said that the company has already talked with some of the cement factories along the Indian border. “It seems that they are not interested,” he said adding that price is not as competitive as it is in India. “Polythene bags are still cheaper in India because of the GST,” he said.

Although some companies in India have shown interest to buy DPL polythene, without an online system at the land customs station documentation is a hassle. This is because the GST system is run on online platform called IceGate. “We were told that until the land customs stations come online, they will not deal with us,” Tshering Tenzin said.

DPL is a DHI Controlled Company with 51 percent of the shares with DHI. When the company first floated its initial public offering (IPO) in 2013, it was thrice oversubscribed by interested buyers.

The factory is run by Bhutanese with over 100 regular employees and 50 day-workers. “We are forced to employ couple of non-Bhutanese as wage workers in the finishing unit, as Bhutanese show less interest to work in our factory,” he said. For instance, repeated call for job vacancy for sewing machinist did not attract any youth from other dzongkhags.